Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2023-Q1

[Baris Safak, executive]

Good afternoon to everybody. Thanks for participating on first quarter financial results webcast. Today, as usual, Mr. Erdem Esenkaya, our CFO, and I will be hosting the webcast. Erdem is going to start with the technical results, and I'll continue with financial side of the P&L and our investment portfolio.

Erdem the floor is yours.

[Ibrahim Erdem Esenkaya, executive]

Thank you, Baris. Hello, everybody, and welcome to Anadolu Sigorta financial presentation on the '23 quarter first. My name is Erdem Esenkaya. Our presentation has 3 different titles, company and market overview, technical results and financial highlights. And as Baris said, I will present company market and overview, after that technical results, after that, my colleague, Mr. Safak, will present the financial highlights. I think it will take nearly 45 or -- 40 to 45 minutes. After that, if there is any question, we will pleasure to answer it.

We were together nearly 3 months ago end of '22 financial highlights, we were talking about it. And at the beginning of the year, we were thinking only the parliamentary and presidential elections for Turkey. It is very important for us. We were thinking that, but when we met in February -- 6th of February, it was a black Monday for us. There's a big earthquake in Southeast of Turkey. And officially, 50,000 people, more than 50,000 people, I guess, 100 may be more than 8,000 people like that. And now nearly 2 months later, we are talking about the first quarter.

Now let's begin the presentation, please, Baris, company and market overview. But first of all, maybe I can say something for it. Yes. First of all, it is very important, Turkey will hold parliamentary and presidential election nearly 10 days later, it will be important for us. Strong earthquake was happened in Southeastern Turkey and Central Kahramanmaras and after that, the Hatay. And after that, with our mission, we began to help our personal or agencies or partners and regional people from first day and pay indemnity and pay advance at the beginning of the second week.

Until now, we have nearly 10,500 claim files be opened and nearly TRY 10 billion or TRY 12 billion we have seen the demand, approximately $500 million. And we finalized nearly 6,000, 6,500 in the term and more than TRY 2 billion we paid and more than $100 million. This is a 98 percentage reinsurance share and TRY 138 million, nearly USD 16 million or USD 17 million from acquisition provision. So there is no unfortunate effect to our financial statement when we think that. On the other hand, we have seen the constitutional court decision are important improvements in the stand for us.

When we look at the highlights in the sector, especially premium production reached at TRY 92 billion and 146.5 percentage year-to-date increasing and 2 devastating earthquakes in Saudis in Turkey, as I said before. And in motor branches, MOD and MTPL [ gradual ] kept increasing in quarter 1, 4.5 percentage per month. MOD policy prices continue increasing in this term and constitutional court cancellation decision rates on provisions. And financial measures, increasing bank deposit rates, low volatility in FX markets, 3.47 percentage depreciation against current basket in '23 quarter 1.

Next slide, please. When We then look at the production figure recast that below the sector total loan life production is TRY 91.9 billion, '23 quarter 1. Last year, same term, it was TRY 37.3 billion. It shows 146.5 percentage increasing.

[indiscernible] premium production increased rate lower than sector premium production increased rate. When we look at the pie chart, we can see the distribution of production share by companies. When we compare to last year, we can say the nearly 1 point decreasing for us and 10-point percentage production share in the sector of premium production.

Highlights Anadolu Sigorta. When we look at the core business, MOD ratio record 54 percentage, solid reinsurance coverage, earthquake net loss, TRY 137 million. Strong household policy demand post disaster, a 292 percentage points increase in 2 months. When we look at the MTPL. MTPL growth to 106 percentage et cetera. Sector growth 166 percentage in '23 quarter 1, policies sold at cap prices. MTPL policies being sold at cap prices and constitutional court decision effect to IBNR is TRY 520 million. When we look at assets under management, reached to TRY 18.6 billion, additional TRY 1.1 billion in quarter 1 as of 31 March, increased the weight of depositing portfolio.

Next slide, please. Well, when we talk about highlights branch breakdown and growth rate Anadolu Sigorta sectors, health, motor and others. When we compare the health the increase in last year is a very good improved in this branch. If we compare the sector, we are at the similar increasing 170%, 171%. When we look at the motor side, slight increasing for us if we compare the last term for Anadolu Sigorta for us from 83 percentage to 130%. But if you compare the sector, we are lower than the sector increasing, the sector increasing 170 percentage. And when we look at the other side, we increased 96 percentage and the sector 115% increasing this term.

Next slide, please. If I look at the premium production, all premium production, TRY 9.1 billion and when we compare to last year, 120.5 percentage increasing year-to-date. When we compare non-life 146.5% increasing. When we look at here, MTPL increasing on the control debt.

Baris, I think. Yes, the presentation now. Okay. Okay. If you look at branches and MTPL, MOD, fire and nature, all increasing MOD and fire and MTPL lower than the sector. But on the other hand, the health is near the sector. And totally, 120.5 percentage increasing in this term.

Next slide, please. When we look at market share, market share, we are in top 2. We are the top -- first of all, aircraft liability is the first rank here, and first place and 7 second places. On the other hand, there are 2 third places in 13 main branches. In this term, maybe we are not first day too much. But at the beginning of the year and the first quarter, our portfolio is normal for us, I think so. And end of the year could be more high level in this premium production. But I must say we haven't got any target to one the first to be here.

Next slide, please. When we look at the net profit side, financial status and activity results of whole company are excellent. It has seen that our assets exceeded TRY 35.2 billion, with an increased nearly 115 percentage compared to previous year. And premium production reached TRY 9.1 billion with an increased 120.5 percentage, compared to previous year again. As a result of the premium increase realized our market share nearly 10 percentage.

On the other hand, regarding the determination of compensation for loss of value, permanent disability and a lack of support in the general conditions of MTPL, which decision 4th December -- we face on 4th of December 2021 with the constitutional court decision, and it affected all provisions are canceled. While the negative impact or cancellation decision on our financial results was approximately TRY 520.8 billion, the net loss figure out of company in the first quarter of '23 TRY 117.1 million.

Next slide, please. When we look at the distribution channel, we have got 2,700 channels, especially the professional agencies and more than 1,000 bank agencies, totally 3,700 branches, it is a good network for us for selling our policies. When we compare the sector, we are the -- again, the agency companies, you can see here more than the sector, especially in agencies side.

But this term, there is quite important increasing in bank insurance site, nearly 2 points. Last year, it was 13 percentage part, but this year, this term -- in this term 15 percentage increasing or -- sorry, not increasing, it is share. So it is a very good improvement for us about differences of the premium production share.

Next slide, please. Yes, technical results. Yes. In accident and health, when we compared the last year -- first of all, the accident gross premium written from TRY 80 million to TRY 144 million, 79.3 points percentage increasing. Claims net here increases too much, but it's a small premium production here. Combined ratio 6.1%, increasing here. In the health side, we have got a good increase in premium production increasing here and the combined ratio, 20 percentage minus is a good result for us. As I said before, we would like to increase our health premium in the future.

Next slide, please. When we look at the MOD side, we have got a strong premium written, about 155 percentage increase and the claims net 51.7 percentage increasing and combined ratio decrease 73.2%, which is a good result for us. And we'll waiting to earn money in this branch in next term, especially in '23. But on the other hand, MTPL is good very -- it is not good very -- affect our financial station, especially increase in premium production, increasing 115.7% (sic) [ 105.7% ] increasing. Claims net 398 percentage. It depends on the constitutional decision, because the calculation affect this side and combined ratio increased 122.6 percentage in this branch.

When we look at fire and natural disaster, group production increasing 118.5% increasing and the claims net 68.1 percentage increasing and combined ratio decreased 32.6% in this term. We would like to get -- earn money about this fire and natural disaster in '23, too. When we look at the general losses, the premium production increasing 104.5%, increasing; and claims net at 10.5%, decreasing; and combined ratio, 43.8% decreasing in this term.

Next slide, please. When we look at the profitability and combined ratio. We have got good results in some places, but MTPL effect negatively, especially mostly, again, I would like to say, constitutional court decision in this term and totally, last year, 122.6% to 125.6 percentage combined ratio. If you compare to last year, nearly 3 points increasing here and the claim -- when look at the claim ratio, 91.4 percentage last year and this year, 98.7 percentage this year.

If [indiscernible] in this sector in insurance sector, getting our money, at the same time, getting some profit is very difficult, because profitability capacity is too low, I can say here.

Now, I would like to give sentence to my colleague, Mr. Safak.

[Baris Safak, executive]

Thank you, Erdem. I'm going to continue with balance sheet and P&L figures. And I'm going to end the presentation with investment portfolio breakdown and investment gains, yields that we were able to achieve, I'm sorry, growth. I don't think you can see the presentation, I think.

On this slide, you can see our balance sheet figures. In the first quarter, our total assets increase was 14.5%, they reached to TRY 35 billion. It wasn't reflected to assets under management growth. As you see, the assets under management growth rate was 6%. The growth was mainly on the receivables side. So we can assume that we will be growing our assets under management amount in the coming quarters.

On the right-hand side, our liability part of our balance sheet, technical reserves increased 18%. The main growth driver here was, well, of course, outstanding claims, mainly coming from earthquake, I may say, and also MTPL IBNR also had an important effect on our outstanding claim reserves growth. And shareholders' equity had a decrease, 14%. The main driver of the decrease was, of course, the net loss that we disclosed in the first quarter, TRY 117 million and also the stocks that we keep available for sale are booked mark-to-market, and they are shown in our equity Anadolu Hayat, you might guess, I think, had an important effect in this amount.

On the next slide, our P&L figures can be seen on the left-hand side, unconsolidated figures and right-hand side consolidated figures. We do consolidate Anadolu Hayat as you might recall. So the only difference is on the net financial income side, technical side is not affected from the consolidation. Our technical income in the first quarter compared to previous year's first quarter increased 129%, and the expenses increased even higher than that 135%. Net financial income was TRY 707 million for unconsolidated P&L and TRY 686 million for consolidated. With the tax effect, we disclosed TRY 117 million net loss in our unconsolidated P&L and our consolidated P&L TRY 138 million.

On the next slide, the breakdown of our financial side of our P&L can be seen. Next slide, please. On the left hand side, you might see the first quarter Q-on-Q -- year-on-year results difference. We had mentioned this our next -- last year's net profit was TRY 197 million and this year's net loss TRY 117 million.

On the right-hand side, you might see the breakdown to the technical side. Our technical earnings was loss-making, TRY 1.142 billion. And after that, investment income was TRY 686 million. We had dividend income from Anadolu Life, TRY 100 million. Amortization and provisions were around TRY 50 million and tax had on positive effect and net income stood at TRY 117 million.

When we look at our return on equity figures. This slide shows 12 months trailing profits due to loss, our ROE also decreased in the first quarter. For unconsolidated ROE calculation, you might see 16% ROE, return on average equity, we should mention. And consolidated figures shows 25% ROE in the first quarter.

On the next slide our investment portfolio breakdown. We had the amount of assets under management was TRY 18.6 billion. At the end of the year, you might recall, it was TRY 17.5 billion, and the increase was TRY 1.1 billion. And investment portfolio on bonds, we invested 38%. Deposits was 21%. You might see some increase in deposits due to higher rates, especially at the end of the quarter, not throughout the quarter, but at the end of the quarter, the deposit rates started going up. So the investment on that part a bit higher. Funds rate was 22% and stock 19%. When we look at our investment income in our P&L, it was TRY 770 million, which is 18% annualized return on Anadolu Life excluded in this number.

And on the next slide, this is the last slide, the breakdown of our bonds and time deposits. According to TL and FX on the left-hand side, bonds is -- 80% of our bonds is investment in FX bonds, sovereign mainly and also corporate Eurobonds, we might see 21%. And 20% of our bond portfolio is TL bonds, almost all of the missed CPI-linked bonds. And on the right-hand side, you might see that our time deposits maturity is very short. So that's going to be an advantage for us, because the environment -- we are in a rising trend in terms of rates. And the time deposits of this portfolio, the quarter of this time deposits is FX deposits and remaining parties TL deposits.

And this was our last slide, thanks for listening and participating our Q1 webcast. [Operator Instructions].

I think we don't...

[Ibrahim Erdem Esenkaya, executive]

I think we are very clear for financial results first quarter.

[Baris Safak, executive]

We have a question from following to below sector growth in some branches, does the company plans to be more aggressive in the remainder of the year?

[Ibrahim Erdem Esenkaya, executive]

I can say we won't any aggressive pricing in this term. We are only targeting to profit, I will say, in the future. Maybe you can ask why this term is lost this kind of, but it is not our subject, because this is the actuarial calculation and we'll obey these rules, so that we reflect our financial statements what would be like that.

For example, if we don't use this kind of provision in this term, we would like will, I think, TRY 300 million profit, we can hold in our financial statements in this term. But after that constitutional court decision, all results affected about it. But this is a first quarter churn reflection. In next quarters, we hope that it won't be any effect of our results.

[Baris Safak, executive]

We have another question from [indiscernible]. Your financial income declined substantially. What was the reason?

Well, we had some exposure to the stocks as stock market declined. We also were not able to make profits from some of our portfolio. That was the main reason. Actually declined substantially, the return was not that -- I wouldn't express that way, actually, because nowadays, we see some deposit rates around 35%. But throughout first quarter, the rate was -- even we had single-digit rates. Maybe we should recall also that.

But yes, we had some exposure to stocks and it was a bit loss-making for us in the first quarter. Hope that was helpful.

No further questions, I guess. No, we have another question from [indiscernible]. Do you expect the continuation of the strengthening that was effective in the demand after the earthquake?

[Ibrahim Erdem Esenkaya, executive]

I think no, I can say because nearly 3 months later, and we think that it finished some kind of demand and nearly 11,000 file or demand -- claim demand for them. And we don't think that more than this. And I think we are at the end of the earthquake demands in this term. Now we are planning to pay very quickly the indemnities for all insurers.

[Baris Safak, executive]

And I think the question was EBIT related. With the demands on policies. Can you clarify the question? If it was enough, of course, we don't need.

[Ibrahim Erdem Esenkaya, executive]

Of course, in this term, it will affect our policy demand in this area and all of the Turkey at the same time. But I can say now we are choosing, because, of course, we are an insurance company, of course, we will do it, but this is very difficult to ensure them in this area, especially in this term, because there is a big effect on some kind of buildings or any industrial places. So we are checking them in our expense. And after that, we are doing or we are making policies, so we are choosing.

[Baris Safak, executive]

It was about policies. There is another question from [indiscernible]. Your growth was below the sector on the average. Is it because you see them not profitable?

[Ibrahim Erdem Esenkaya, executive]

In this term, as I said before, we weren't any aggressive pricing in this term. And again, in the '23, we won't be the aggressive pricing, but we'll get to earn money or our target here. We are choosing, I'd say the risk management. That's all.

[Baris Safak, executive]

We have another question from [indiscernible]. Could we see improvements at combined ratio for the next quarters?

[Ibrahim Erdem Esenkaya, executive]

Only I can say the good feeling for it or the wishes, I wish, the I can say. I'll try to do this. It is very difficult because any catastrophes could be happened. For example, today, a big rainy in north of Agri, [indiscernible] side, for example, in today. So we can't control them. We are an insurance company, we will see them. But we'll, of course, we'll try to decrease the combined ratio, it is necessary to get profit.

[Baris Safak, executive]

I think especially MOD claims ratio is very important on this point in the next term, in the next term. The first quarter was very successful actually. On other on the hard side, it is a very good side anyway, it pass on the earthquake, but anyway, the fire side is good too.

[Ibrahim Erdem Esenkaya, executive]

And the important point that we put all the reserves in our outstanding claims related with the court decision. That's an important point, actually. It was a one-off effect, and it was all injected in first quarter, core MTPL, I'm talking about.

Is there any question?

[Baris Safak, executive]

I don't -- I think there's no other questions. Erdem back to you for the closing. No other questions, Erdem.

[Ibrahim Erdem Esenkaya, executive]

Okay. Thank you very much for your interest and joining our presentation. I hope that is a better days, especially for our country, and for our sector and company and end of a very good results. Thank you.

[Baris Safak, executive]

Thank you.